(CN) - Before its record-breaking post-bankruptcy IPO in November 2010, GM allegedly unloaded excessive inventory on dealers to create the impression that sales of GM cars and trucks were on the rise, a shareholder class action claims.
George Scott filed a class action against General Motors Company, 10 of its corporate officers, and 33 investment banks that agreed to distribute shares of GM stock, including Morgan Stanley, Merrill Lynch, and Citigroup, in the Southern District of New York.
Following its emergence from bankruptcy in 2010, General Motors held an initial public offering on Nov. 18, 2010, by which shareholders, including the U.S. Treasury, offered 478 million shares at $33 per share. The IPO allegedly raised a record total of over $23 billion, in what was the largest IPO in history at the time, according to the complaint.
Scott claims that "in connection with the IPO, and in order to assuage concerns that GM was predicting revenue based on production rather than actual sales, GM falsely assured investors that it was actively managing its production by monitoring its dealer inventory levels. Additionally, GM assured investors that in 2011 it would improve inventory management, which would improve average transaction price ... These statements were false when made. In July 2011, reports began to surface that GM had engaged in an extraordinary inventory build-up. In particular, an article published by Bloomberg on July 5, 2011 revealed that GM may have been unloading excessive inventory on dealers, a practice known as 'channel stuffing,' in order to create the false impression that GM was recovering and sales and revenues were rising."
The article stated that "GM's truck inventory swelled to 122 days worth of average sales whereas, by comparison, GM's less profitable car inventory was limited to 60 to 70 days of average sales, Ford was maintaining only a 79 day inventory on comparable trucks, and GM's truck inventory during the years 2002-2010 had similarly averaged only 78 days of average sales. By November 2011, GM dealer inventories were 30 percent higher than they were on September 30,2010 (the end of the last full quarter before the Nov. 18, 2011 IPO) and 62 percent higher than they were at the end of 2009," according to the complaint.
The article also "quoted an analyst from Jefferies & Co. stating '[i]t's unbelievable that after this huge taxpayer bailout and the bankruptcy that we are right back to where we were.' The analyst further stated, 'There's no credibility,'" Scott says.
He claims that "during the three months following the Bloomberg article, GM's share price fell from more than $31.00 to below $20.00, far below the IPO price of $33.00, and continues to trade around $20.00 today."
The class is represented by David Straite, Ralph Sianni, and Michele Carino of Stewarts Law in New York, and Katharine Ryan and Richard Maniskas of Ryan & Maniskas in Wayne, Penn.